NY judge orders trial in Clear Channel buyout fight

By Megan Davies and Paritosh Bansal

NEW YORK (Reuters) - A New York state judge said on Wednesday a dispute over financing the $20 billion (10.25 billion pound) buyout of Clear Channel Communications (CCU.N) would go to trial on a breach of contract claim filed against six banks, according to a court filing.

Justice Helen Freedman, however, threw out three of the four claims against the banks, including claims of fraud and civil conspiracy. A date for the trial is yet to be set.

U.S. radio operator Clear Channel struck the deal to be bought by private equity firms Thomas H. Lee Partners and Bain Capital for $39.20 a share at the peak of the private equity boom last year. The market has changed drastically since then, with the cost of financing leveraged loans skyrocketing.

The deal descended into litigation this year when THL and Bain filed complaints in New York and Texas against Citigroup (C.N), Morgan Stanley (MS.N), Credit Suisse Group (CSGN.VX), Royal Bank of Scotland Group (RBS.L), Deutsche Bank (DBKGn.DE) and Wachovia WB.N to force them to fund the buyout. San Antonio-based Clear Channel joined them in the Texas suit, but was not a plaintiff in the New York case.

In New York, the private equity firms are seeking "specific performance" of a commitment letter detailing plans to fund the deal. Specific performance is when one party asks a judge to order another party to stick to a contract, and the issue remains part of the case going forward, according to Wednesday's filing.

The banks have argued New York courts hold that, except in cases involving real property, a party may not secure specific performance of a contract to lend money. They have also argued the letter calls for them to lend money pursuant to documents that are to be negotiated later. They argued the two sides were in talks when the buyers sued.

A spokesman for THL and Bain said in an e-mailed statement: "We are especially pleased that the court has confirmed that the banks may be forced under New York law to live up to the commitments they made to finance the Clear Channel transaction.

"The evidence we have presented thus far is just the tip of the iceberg of extensive documentation and days of testimony we will present at trial," the spokesman added.